Academy Series #9: Using Blockchain for better Traceability in Supply Chains
Until now, most of our articles in the Academy Series have been focused on major consumer trends in Web3 and Blockchain. These are, in fact, the areas where we publicly see more impact of this technology but there is much more happening outside the public eye, and there are several possible applications for blockchain beyond the consumer realm.
Blockchain, as a technology, can also be used for enterprise and industry-wide applications, and that’s where our article will be focused today. We’ll cover one of the most interesting and useful aspects of Blockchain, as a technology, and how it can be used in multiple industries and sectors: Traceability.
What is Traceability?
In any business that involves the exchange of goods and/or transformative processes of those goods, you always have a big logistical chain from end to end. For example, from the producer of the grain through to commodity traders, through Cereal processors, through the wholesaler, and to the final retailer, there are dozens of steps from the moment the raw material is acquired until the finished product is sold.
Since a product is not built with a single material but with an ensemble of different materials, these steps happen dozens of times considering all the provenance from different sources and suppliers.
Traceability is the capability of tracking all this product information throughout the steps mentioned above: from the origin to the final destination, including details on all the transformative steps.
Why does it matter?
Nowadays, traceability is one of the most important things companies worry about.
A simple example we don’t think about often as consumers is that whenever a company has a problem or a complaint with a product, they need to be able to identify the source of the problem across their entire supply chain, in order to properly fix the cause and provide better customer service.
Also, many industries need to guarantee specific sourcing standards whether for regulatory reasons, for humanitarian reasons (for example Fair Trade certification), or simply because their customers expect a high-quality standard from the raw materials that they use (for example gemstones).
This is why traceability is critical and important for many productive companies all around the world. In the end, being able to have an accurate trace of the products across the supply chain gives us additional trust and confidence in all the products we purchase.
Building & verifying trust across the entire supply chain
One of the biggest issues to achieve traceability is how we guarantee trust across the supply chain.
Trust is usually developed over time between all the entities in the supply chain, but how can we guarantee it? We, as consumers, unconsciously set our trust in the entity from who we bought the product and trust that they did their due diligence to prove the reliability of the origin of the goods we just bought.
This creates a backward relationship, where one always puts their trust in the previous participant on the supply chain, but at the same time, no one really has full visibility and traceability of the goods.
And the more players involved, the more complexity and relationships exist and an increasing lack of visibility of each other’s data and activities.
So, the biggest challenge that businesses face in their supply chains is verifying trust across the entire supply. Performing supply chain due diligence can be a time-consuming and exhausting experience. You have to go through paper-based processes, limited information on product traceability, and inconsistent or missing data.
This is why gathering, consolidating and managing information of traceability of goods through the supply chain is so crucial. But before blockchain existed the only way to achieve this, would be to have a 3rd party, outside the supply chain, validate and confirm all the transactions.
Only a centralized system would be able to achieve this, and all the organizations would have to adhere to that centralized system, and most of all, they would have to accept and trust the independence of that 3rd party.
And this hardly ever happens.
Blockchain — Bringing decentralized trust
Managing trust across the supply chain is where Blockchain comes into play. Blockchain is a technology that allows people and teams to work together in a trustless manner — “I don’t need to trust you to do a transaction with you, I trust the protocol and the decentralized ledger.”
So, in short, blockchain can help with two critical components in supply chain:
- address traceability challenges;
- be a truly independent decentralised ledger
Track and trace functionality solutions implemented with blockchain enable entire supply chain networks to document updates to a single shared ledger. And every organization can do it in an independent manner. The benefits of this are various:
1) the ledger of transactions is maintained independently;
2) organizations can use their own system and software to read and write to that ledger;
3) you can create incentive mechanisms to incite good behavior across the supply chain.
Blockchain then provides total data visibility and a single source of truth, enabling:
- an audit trail for all transactions, right back to a product’s raw materials;
- smart contracts to automate and streamline processes;
- immutability avoiding corruption of data and information by any malicious stakeholder.
Some examples of application
There are already several initiatives across the world to introduce blockchain as a way to independently manage and trace supply chains.
Below you can find how it can be applied to different industries
Wine Industry — It is believed that worldwide nearly a third of all alcoholic drinks are mislabelled, counterfeit or fake. The wine and beverages industry is one where traceability is critical. Every genuine bottle must pass strict geographical certification procedures to establish its authenticity. Therefore, if this information can be captured in a transparent manner, and then made available to traders, collectors, and buyers, the risk of counterfeiting can be mitigated. In addition, brands can market the undisputed authenticity of their wines using an entry on the blockchain.
Art — One of the art market’s greatest challenges is to verify the authenticity and provenance of their artworks. There are always reports of famous artworks that after proper examination was either forged, not attributed to the correct artist, or the owner didn’t have a way to prove authenticity. Blockchain, and public NFTs are a perfect fit for this use case.
Gems & Luxury Goods — Similarly to the art industry, counterfeit products, and goods are a serious and prolific issue in the industry, specially to make sure the gems and luxury items are sourced from a legitimate supplier.
Coffee — Coffee is by far the world’s most popular drink and one of the biggest supply chains in the world. However, there are several issues on the coffee supply chain, especially when it comes to the origin of the beans or how fair the value is distributed throughout the chain. There are a number of big-name coffee companies claiming to be engaging in “Fair Trade’’ when in fact they purchase their coffee through other middlemen. The reality is that farmers in far-reaching locations like South America rarely receive fair compensation both for the extent of their work and for the value of their product. A blockchain with properly set incentive mechanisms could help address this issue
These are just a few examples, but you can find applications in many more fields of work.
In short, blockchains can be applied to many more scenarios than consumer-facing applications and Web3. They have applications at the enterprise level and can disrupt entire industries bringing more transparency and openness to the globalized world of commerce.
If you have questions or ideas around the topic feel free to reach out directly to us and I’ll be happy to help! Just ping me directly at email@example.com !
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